Back-to-school spending is expected to flatline in still-fragile Canadian market: Ernst & Young

(Montreal, 11 August 2011) Back-to-school spending is expected to be flat this year compared to last and will compound an already tough situation for Canadian retailers still reeling from a poor spring buying season brought on by bad weather, says Ernst & Young.

“Back-to school is the second most important season on the retail calendar,” explains Daniel Baer, Ernst & Young’s Canadian retail and wholesale industry leader. “But retailers continue to face a number of headwinds. The Canadian economy continues to grow slowly and consumer confidence remains fluid. Although lower than their peak levels, higher gas and grocery bills have reduced consumers’ disposal income, as inflation continues to outpace salary increases.”

Price increases caused by higher commodity prices, including cotton, will also have an impact on spending. The good news for retailers, however, is that children’s items are usually the last place for parents to cut since these items are viewed as necessities, not luxuries. Clothing, footwear, supplies and electronics are expected to continue to be high atop shopping lists.

Consumers are also heeding calls to reduce household debt and are focused on value and price. Global economic uncertainty and concerns about future interest rate hikes are also taking their toll on consumer attitudes.

Another concern for retailers is the volatile dollar. The high dollar in July has fuelled traditional and online shopping in the US, where back-to-school promotions on clothes, gadgets and paper supplies started as early as July 1.

Baer predicts that back-to-school spending across Canada will be mixed, with Alberta and the Prairies leading, and Quebec lagging. 

Retailers can take steps to combat these headwinds, says Baer. He suggests retailers focus on loyalty program and embrace social media: “Retailers must go beyond traditional shopping methods and adapt to emerging trends and technology dominating the buying landscape.”

According to an Ernst & Young survey, 66% of respondents have at least one frequent or loyalty shopper card they use to get sale prices, earn rewards, points, special discounts or coupons.

“Today, participation in frequent shopper programs is not only about loyalty. These days, it’s about immediate savings, not deferred points,” explains Baer. “Retailers need to know their customers well and must find ways to cater to them effectively.”

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